Analyzing Big Lots Stock after Its Business Update

Big Lots (NYSE:BIG) stock rose by around 27.2% on June 26. The company announced a business update on its second-quarter results. On June 26, the stock hit its 52-week high of $44.90 and closed at $43.04 after its impressive preliminary second-quarter results. The company will likely report its second-quarter results in August.

Like most companies, Big Lots stock was hit by the coronavirus pandemic. The stock touched its lows of $10.13 on March 16 due to the outbreak. However, Big Lots stock started rising. The stock has risen by about 325% since its March lows. Big Lots shares have risen by 55.2% this year. Based on the last closing price, the retailer has a market cap of $1.69 billion.

Big Lots’ Q2 preliminary results

In the second quarter, which ends in July, Big Lots expects to report an increase in comparable sales by a mid-to-high twenties percentage due to strong demand. The company has witnessed a surge in demand since mid-April, which should be reflected in the second-quarter results. Big Lots also disclosed that its comparable sales for the second quarter are ahead of the expectations.

The company expects its adjusted EPS to be $2.50–$2.75. During the same period last year, the adjusted EPS was $0.53. Big Lots’ second-quarter adjusted earnings exclude an $11.00 per share gain related to the sale of its four distribution centers in early April. Overall, the sale was meant to help the company boost its liquidity position. Big Lots plans to pay its debt and fund its growth initiatives after the economy returns to normal. Telsey Advisory Group also upgraded the stock due to the company’s transformation plan.

Analysts’ expectations

Wall Street analysts expect Big Lots to report sales of $1.54 billion in the second quarter. The figure would mark an increase of 22.9% YoY. Analysts expect the company to report an adjusted EPS of $2.27 in the second quarter—up over 100% from the second quarter of 2019. Currently, analysts expect a 10.1% rise in the company’s fiscal 2020 revenues and about a 62.1% YoY increase in its fiscal 2020 earnings.

Analysts’ recommendations and technical details

Among the nine analysts covering the stock, only three recommend a “buy”—up from two the previous month. Meanwhile, five analysts recommend a “hold”—down from six the previous month. Only one analyst recommends a “sell”—unchanged from the previous month. Notably, analysts have an average target price of $45.29 on Big Lots. The target price implies an upside of 5.23% based on the closing price of $43.04 on June 26.

Looking at the technical details, Big Lots’ 14-day RSI (relative strength index) score is 72.28. The RSI suggests that the stock is already overbought at the current levels. The stock closed near its upper Bollinger Band level of $40.25, which suggests that it’s overbought.

Bottom line

Big Lots stock is at its peak despite uncertainty amid the pandemic. Even before the pandemic, the discount retailer reported better-than-expected results for the first quarter of fiscal 2020, which ended on May 2. While the adjusted earnings were $1.26 in the first quarter, the revenue was $1.44 billion. The company’s comparable sales also grew more than 10% in the quarter.

Investors should definitely consider buying the stock due to its strong upside potential. However, they should buy the stock on a dip.